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Explore the zero-interest model of financing for procedures

Article-Explore the zero-interest model of financing for procedures

Key iconKey Points

  • Consumers who gravitate toward no interest tend to be more financially savvy and lower credit risks
  • Layaway plans can be a bad idea because patients would have to pay for the procedure in full before having the surgery. That could take years.
  • Cosmetic surgeons'own brand of in-house financing can be a bad move as well

Mr. Seymour
Elective and cosmetic surgery arenas are feeling the pain, as credit is not only tightening, but credit scores are falling in response to the crunch. Add to that jittery consumers' response to it all by hanging onto their wallets on anything deemed non-essential. "This is probably the worst economic cycle we've had since the Great Depression," states Tony Seymour flatly. Mr. Seymour is senior vice president of sales, CareCredit, a division of GE Money, Costa Mesa, Calif. "It's kind of the perfect economic storm: you have the subprime meltdowns, credit freezing, banks having trouble borrowing money and, when they do, borrowing it at much higher rates than they used to."

At the same time, according to Mr. Seymour, consumers are facing rising unemployment and, whether due to actual or feared job loss, they're not spending as much. But despite the market forces working against discretionary spending, there are things cosmetic surgeons can do to spur business, he says.

TIGHT-FISTED All financial institutions, according to Mr. Seymour, are tightening lending practices simply because they do not want to risk making loans to people who will not pay them back. Falling credit scores, such as the commonly used FICO, or Fair Isaac Corporation credit scoring model, are causing lenders to deny financing.

"We only want to lend money to people that we think have an above average chance to pay it back," Mr. Seymour says. "The credit quality of the incoming applications of patients applying has fallen dramatically in the last year as more patients are squeezed by this economic cycle. Two years ago, if you felt [financially] safe and secure, you may have been using your home equity as a piggy bank. People are not doing that anymore." Like others, he hesitates to predict when things might take a positive turn.

"This is not your typical cycle. It's very dynamic," he cautions. The good news, to his mind, is that the Federal government has been pouring bailout money into the system. While credit approvals will remain strict, with the additional capital, banks should eventually make more money available to lend—though the Feds may have to press them to do so.

ZERO IN One way he says cosmetic surgeons can motivate consumers to move forward on procedures is to offer zero-interest financing. "Consumers are motivated by no interest," Mr. Seymour says. And those who gravitate towards no interest tend to be more financially savvy and lower credit risks, he claims.

He adds that dentists have long used this financing approach with success. "We've been in the finance market for 22 years and, for the first 10 or 12 of that, we were only in the dental market and the only programs we offered were no interest. It's also been used very successfully in the LASIK market," Mr. Seymour says.

All major financial institutions offer no-interest plans. They work this way: The patient applies. The doctor processes the loan and is paid in two business days. The following month, the processing fee is taken out just like with Visa or MasterCard, Mr. Seymour says. Doctors pay that fee, but benefit with no obligation to pay the loan back if the patient fails to pay the financing company. With an interest loan, the physician would also pay a processing fee, but not as much as with the zero-interest option. CareCredit, for example, has a based rate of 5 percent for its extended payment plan, with interest. The corporation's no-interest plans range from 5 percent for three months no interest, to 13 percent for 18 months no interest.

"The LASIK doctors used to think of it [the fee] as an expense when they did their profit and loss statements. You have to think of it as a marketing tool. If it motivates one patient to come in and get the procedure who wouldn't have, that's $4,000 to $5,000 for that one patient. That will pay for 12 months worth of processing fees," Mr. Seymour says.

He holds a different opinion about cosmetic surgeons' offering layaway plans. He thinks it's a bad idea because people who want cosmetic surgery are highly motivated to get it. In a true layaway plan, patients would have to pay for their procedures in full (in increments) before having the surgery. That could easily take years.

Cosmetic surgeons' doing their own brand of in-house financing is another bad idea in Mr. Seymour's opinion. "[Financing] is not what doctors do. Doctors practice medicine. They do not have access to the information that a financial institution does, as far as who to to collect from that patient," he says.

SERVICE 101 Financing aside, now's the time to improve processes, Mr. Seymour advises. Brush up on staff training and phone and consultation skills so that more calls are converted to consults and then to surgery. "All it takes is one or two or three more patients a month to make up for the decline in your surgical volume due to the economy," he says. Market to your existing database, he adds. "We know cosmetic patients like to have several procedures. The average CareCredit cardholder will use the card three or four times for cosmetic procedures, so you have a great base already of prospective clients. Also, encourage patient referrals. We have marketing programs that could help physicians implement referral programs. And promote no-interest financing—see if it makes the phone ring."

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